Written by Saori N. Katada.
Image credit: Promoting BC’s strengths with Tokyo business community by Province of British Columbia/ Flickr, license: CC BY-NC-ND 2.0.
For more than a decade, the Transpacific Partnership (TPP) trade agreement has been vital to the Japanese government’s economic agenda. This mega free trade agreement encompassing the Asia Pacific, originally negotiated among twelve members, has aimed not only at creating a large free trade area among the members but also installing the most advanced trade and investment rules in the region. After joining its negotiation in 2013 and especially since the 2017 US exit from the agreement, Japan has been taking a leading role in shaping and protecting this scheme. Finally, in December 2018, the Comprehensive Progressive Agreement of the TPP (CPTPP) came into effect with the remaining eleven members. Despite the US absence, it began to attract interest among others to join.
In the last few years of the CPTPP’s existence, there was no bigger challenge for Japan than the September 2021 twin application by China and Taiwan to enter the CPTPP. As the largest economy among the CPTPP members and the force behind “saving” the TPP, Japan is facing a gatekeeper’s dilemma in evaluating these applications, especially that of China. Because the assumption is that Taiwan’s membership will take a similar form as the case of the WTO accession, where China and Taiwan join the arrangement nearly simultaneously. China’s accession holds the key to Taiwan’s accession as well as the CPTPP expansion in Asia.
As China’s CPTPP applied to join the CPTPP on September 16, 2021, along with the application from Taiwan six days later, Japan anxiously hoped for the return of the United States to the TPP. But unfortunately, Japan’s hopes were dashed. Although the United States was left out in the cold in the Asia Pacific mega-FTAs as not only the CPTPP emerged without the United States but also the RCEP came into effect in January 2022, the Biden administration, following Trump, showed no sign of returning to the CPTPP. In fact, Biden’s foreign policy team began to pitch a different economic scheme under the Indo-Pacific Economic Framework and called the CPTPP an outdated economic engagement tool.
At the time of Chinese and Taiwanese announcements in mid-September, Japanese leaders supported Taiwan’s accession while cautious about that of China. Right after China’s announcement, then-Minister of Economy, Trade, and Industry Kajiyama Hiroshi noted, “we have to ascertain if China is ready to meet the high standards (of CPTPP).”
During the LDP party presidential debate, three candidates (Kishida, Kono and Takaichi) were sceptical about China’s ability to meet such a high standard, and only one (Noda) supported its bid. We heard cautious words even from the Japanese businesses, which tended to support Japan’s economic engagement with China. For example, Tokura Masakazu, the President of Keidanren (Japan Business Federation), noted that the high-level framework of TPP should not be compromised, and Mimura Akio, Chairman of the Japan Chamber of Commerce, and Industry, also emphasized the same point.
As a gatekeeper of the CPTPP, Japan faces two contrasting sides of China’s CPTPP accession. On the one hand, Japan would welcome the expansion of the CPTPP, where the new applicants will be bound by the high-standard trade and investment rules, which facilitate and protect Japanese businesses operating outside of Japan, particularly in China. CPTPP rules are also instituted to counter China’s advantages, such as using State-Owned Enterprises. Having Taiwan, Japan’s important trade partner, join is also a welcome development. On the other hand, Japan and the current CPTPP members have to ensure that China’s potential membership will not dilute the standards of CPTPP. Furthermore, China’s possible geopolitical motives to join the CPTPP have given rise to economic security concerns and motivated the Japanese government to respond with increased caution under intense securitization of the global economy in the 2020s.
On the positive side, the economic impact of China’s entry into the CPTPP itself is significant. According to a well-cited estimation by Petri and Plummer from 2019, China’s membership will quadruple the global income gains from $147 billion annually to $632 billion. Although the RCEP covers trade between Japan and China as of 2022, China’s CPTPP membership would integrate China into the regional trade order under the higher standards not available in the RCEP, including rules on e-commerce, labour and environmental standard, as well as rules on the State-Owned Enterprises. CPTPP rules also limit China’s use of “security exception” for data localization measures available in the RCEP. Furthermore, the Japanese government will surely accrue diplomatic gains in touchy Sino-Japanese relations to negotiate and support China’s entry, at least in principle. As Japan’s China expert, Tsugami Toshiya, noted, such a process will provide Japan with “a valuable platform for dialogue with China.” Two Southeast Asian nations that have already ratified CPTPP, Singapore and Vietnam, are in favour of China’s membership, and Japan would not want to be the one (seen as) blocking China.
Despite these possible benefits, there are major concerns for Japan and other CPTPP members regarding China’s accession and its role as the biggest economy among the CPTPP members once it is to join. The first and foremost, as mentioned by the Japanese leaders from the government to business, is how to uphold the high standard and clear rules of the CPTPP. China’s track record, an indication of its future behaviour, comes from its behaviour in the World Trade Organization (WTO). Evaluating the last 20 years of China’s performance since its accession into the WTO in late 2001, the US Trade Representative’s office published a Report to Congress on China’s WTO Compliance. It determined that China’s compliance record has been poor. The Japanese assessment was not as blunt, but the Ministry of Economy, Trade and Industry reported China’s multiple compliance violations.
After coming into effect, the CPTPP members adopted an “accession process” to the CPTPP in January 2019. The process includes the principle of a “benchmark” where the aspirant economies must (a) demonstrate how they will comply with all of the existing rules contained in the CPTPP; and (b) undertake to deliver the highest standard of market access offers on goods, services, investment, financial services, government procurement, State-owned enterprises and temporary entry for business persons. This process was applied to the CPTPP’s first applicant, the United Kingdom, which formally applied to join the CPTPP on February 1, 2021. The Japanese government, along with the CPTPP members, held high-standard to evaluate the UK case and plans to have this case as the model for future application cases, including that of China.
The second major challenge for Japan concerning China’s accession to the CPTPP is the rising economic security concerns. In the first two years of the 2020s, the Covid-19 pandemic and the US-China trade war has cast a heavy shadow on the interdependent global economy and resilience of the extended supply chains. Securitization of the economy is reflected in how the Japanese government began to formulate institutions to tackle economic security issues during this period, including establishing the Economic Security Minister for the first time in Japanese history in November 2021 under Prime Minister Kishida. Furthermore, in May 2022, the Economic Security Law passed in Japan to protect four areas of economic security: supply chain resilience, protection of critical infrastructure, public-private sector cooperation in cutting-edge technology, and safety of patents. These trends towards economic security have further complicated accession issues, particularly when the Chinese government’s recent drive for national technology developments and its track record of economic securitization raises increased concerns for the country’s commitment to the “free and open” rules (especially among the member states) promoted by the CPTPP.
Finally, the Japanese government is tasked to lead the CPTPP with “like-minded” countries and economies that share the fundamental values of democracy and human rights, with whom Japan can establish a strong coalition. Such a coalition can impose “peer” pressure on China in its accession and post-accession. Recently, Japan (and Australia) have advocated engaging the European Union (EU) for such a purpose. Along with the UK accession, possible membership of the EU could put a heft on the CPTPP and counter China’s room of potential abuse in the system. Given that Japan is already an EPA partner to the EU (in effect on February 1, 2019) and the UK (in effect from December 31, 2020), the Japanese government could actively engage with both European players. Japan’s efforts to continue to involve the United States is also an important task. The US government has recently moved to promote “reshoring” (to bring US manufacturing back to the United States) and “friend-shoring” production, especially those of critical technology, which would provide an instrument of economic security. Furthermore, embracing and encouraging CPTPP applications from other Asian nations such as South Korea and Indonesia would be a critical part of this coalition-building moving forward.
Saori N. Katada, Professor of International Relations, University of Southern California.
This article was published as part of a special issue on “Comprehensive and Progressive Agreement for Trans-Pacific Partnership.”
Taiwan Insight 